Recent research estimates that the short-run price elasticity of demand for gasoline in the U.S. is -0.3, and the long-run price elasticity of demand is -1.4. What happens if the govenment increases the federal gasoline tax?
A) Consumer expenditures on gasoline increase over the short run and long run
B) Consumer expenditures on gasoline decline over the short run and increase over the long run
C) Consumer expenditures on gasoline increase over the short run and decline over the long run
D) Consumer expenditures on gasoline decrease over the short run and long run
C
You might also like to view...
Along an LM curve at higher interest rates there is __________ money demanded, so income must be higher to __________ the demand for transactions balances if the total demand for money is to equal the fixed supply
A) less; decrease B) less; increase C) more; decrease D) more; increase
Suppose we were analyzing the Turkish lira per euro foreign exchange market. If The Euro-Area's risk level falls relative to Turkey and nothing else changes, then the:
a. The supply of euros in the foreign exchange market rises, and the demand for euros in the foreign exchange market falls, causing a depreciation of the euro. b. The supply of euros in the foreign exchange market falls, and the demand for euros in the foreign exchange market falls, causing an uncertain change in the value of the euro. c. The supply of euros in the foreign exchange market falls, and the demand for euros in the foreign exchange market rises, causing an appreciation of the euro. d. Neither supply nor demand in the foreign exchange market change because relative international prices influence trade flows and not the exchange rate. e. The supply of euros in the foreign exchange market rises, and the demand for euros in the foreign exchange market rises, causing an uncertain change in the value of the euro.